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The dollar seesawed versus the yen on Tuesday, as investors weighed healthy gross domestic product data in Japan against expectations that interest rates will soon rise in the United States.
The US currency fell more than half a yen to a session low of 113.83 yen after the data showed Japan's economy grew a real 1.4 percent in January-March from the previous quarter. Economists had forecasted growth of 0.9 percent.
But it quickly trimmed losses on bargain hunting and headed towards the day's high of 114.70 yen. The dollar was back down at 113.95/98 yen, versus 114.31/39 in late US trade.
Traders said the currency could come under pressure against the yen when European markets kick off trade, given that the Nikkei share average rebounded on the growth data.
"The GDP is good and the Nikkei is up so I think we'll see a dip in dollar/yen," said Kenji Kobayashi, senior manager of the forex and treasury division at the Bank of Tokyo-Mitsubishi.
"But I don't think the dip will be big because the basic stance in the market is still 'buy-dollars'."
The dollar was supported on expectations that the US Federal Reserve will raise rates, which would likely make dollar-based assets more attractive.
Currently, futures markets are pricing in a rise in the federal funds rate to 1.25 percent from 1.0 percent when the Federal Open Market Committee meets in June, and a second increase in August.
The Nikkei average finished trade up 1.96 percent at 10,711.09, after losing 3.18 percent on Monday to end at a three-month closing low.
The euro was $1.1994/98, down from $1.2015 in late New York trade.
It was choppy against the Japanese unit at 136.69/76 yen after hitting a high of around 137.85. It fetched 137.50 in late New York.
Japan's GDP grew a real 5.6 percent on an annualised basis, compared with a median forecast for 3.6 percent.
Still, dealers and analysts were not so optimistic about the future of the Japanese economy, hampering the yen's rise.

Copyright Reuters, 2004

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